In the business environment, one of the critical decisions facing a business manager is determining the price at which each product is to be sold. Conventional techniques of determining an optimal product price generally rely on trial and error, managerial expertise, and even plain guesswork. One approach contemplated by the inventors is the use of highly precise econometric modeling. Econometric modeling determines the relationship between sales volume and various other economic factors (pricing, cost, promotion, seasonality, demographics, etc . . . ). Such modeling enables the generation of accurate prediction of sales volume. The related concept of financial modeling combines predicted sales volume with fixed and variable costs associated with stocking and selling products.
By using customized and precisely tuned econometric and financial models a user can identify an optimized solution (pricing, promotion, etc . . . ) given a particular goal (such as profit maximization) and a set of constraints (such as maximum price increase). For example, prices may be set with the goal of maximizing profit or demand or for a variety of other objectives. Profit is the difference between total revenue and costs. Total sales revenue is a function of demand and price, where demand is a function of price. Demand may also depend on the day of the week, the time of the year, the price of related items, location of a store, and various other factors. As a result, the function for forecasting demand may be very complex. Costs may be fixed or variable and may be dependent on demand. As a result, the function for forecasting costs may be very complex. For a chain of stores with tens of thousands of different products, forecasting costs and determining a function for forecasting demand is difficult. The enormous amounts of data that must be processed for such determinations are too cumbersome even when done by computer. Further, the methodologies used to forecast demand and cost require the utilization of non-obvious, highly sophisticated statistical processes.
It is desirable to provide an efficient process and methodology for determining the prices of individual items such that profit (or whatever alternative objective) is optimized.